The Chancellor has delivered the Autumn Budget 2025, maintaining a strict stance on wealth transfer taxes to raise revenue. While some of the most feared “draconian” measures (such as a lifetime gifting cap) did not materialize, the Budget solidified the freezing of thresholds and confirmed major structural changes to Business Property Relief (BPR), Agricultural Property Relief (APR), and pension death benefits. The fiscal drag effect will continue to pull more estates into the tax net until at least 2031.
Actual IHT Measures in the Budget 2025
The following measures were confirmed in the Chancellor’s speech:
- Threshold Freeze Extended to 2031: The Nil-Rate Band (NRB) remains frozen at £325,000, and the Residence Nil-Rate Band (RNRB) at £175,000. These were previously frozen until 2030 but have now been extended for a further year to April 2031.
- Business & Agricultural Relief Restricted (April 2026): From April 2026, the 100% relief for qualifying business and agricultural assets will be capped at a combined allowance of £1 million per person. Value above £1 million will attract relief at only 50%, effectively creating an effective IHT rate of 20% on business/farm assets exceeding this cap.
- Pensions Subject to IHT (April 2027): Confirmed plans to bring unused pension pots and death benefits into the scope of inheritance tax from April 2027. This removes the traditional role of pensions as a tax-free generational wealth vehicle.
- Specific Exemptions: Payments from the “Infected Blood” compensation scheme will be fully exempt from inheritance tax.
- No Change to Headline Rate or Gifting Rules: The standard IHT rate remains 40%, and the 7-year rule for Potentially Exempt Transfers (PETs) remains unchanged.
Comparison: Article Predictions vs. Budget 2025 Reality
The article “Inheritance Tax Planning Countdown Budget 2025” warned of three critical rules under immediate threat. Here is how those fears compare to the actual Budget 2025:
Area of Concern | Article Prediction / Warning | Actual Budget 2025 Outcome | Verdict |
7-Year Rule | Predicted the 7-year window for tax-free gifting could be extended to 10 years or longer. | No Change. The 7-year rule remains in place. Gifts made more than 7 years before death remain tax-free. | Prediction Incorrect (Status Quo maintained) |
Lifetime Gifting | Warned of a Lifetime Gifting Cap (e.g., £100,000) limiting total tax-free transfers. | No Cap Introduced. Individuals can still make unlimited Potentially Exempt Transfers (PETs) provided they survive 7 years. | Prediction Incorrect (Relief for taxpayers) |
Business Reliefs (BPR/APR) | Stated a “Confirmed Restriction” capping 100% relief at £1m would apply. | Confirmed. The Budget solidified the £1m cap on 100% relief for BPR/APR assets from April 2026. | Prediction Accurate |
Pensions | Warned that pensions would be included in estates from April 2027. | Confirmed. Unused pension funds will be subject to IHT from 2027. | Prediction Accurate |
Analysis: The article correctly identified the “hard” structural changes regarding businesses and pensions. However, the speculative fears regarding a crackdown on lifetime gifting and the 7-year rule proved unfounded, offering families a continued (though potentially temporary) window to plan.
Solutions and Strategic Planning
With the rules now set for the coming years, the following strategies can help mitigate the impact of the Budget.
Aggressive Lifetime Gifting (The “Use It” Strategy)
Since the 7-year rule and unlimited gifting allowances survived the Budget, this is now the primary defense against IHT.
- Solution: Accelerate large gifts (PETs) immediately. By gifting assets now, you start the 7-year clock. Since the threat of an extension to 10 years did not happen, the current 7-year timeline is a valuable “loophole” relative to what could have happened.
- Insurance: Consider “Inter Vivos” term assurance to cover the potential tax liability if the donor dies within the 7-year taper period.
Pension Planning Review
With pensions entering the IHT net in 2027, they are no longer the ultimate tax shelter.
- Solution (Spousal Bypass): Ensure “Expression of Wish” forms nominate a surviving spouse/civil partner. Transfers to a spouse remain IHT-exempt. If left to children, the pension will be taxed.
- Solution (Spend It): It may now be more tax-efficient to spend pension capital during retirement (funding living costs) while preserving other assets (like ISAs or efficient gifting capital) that might be easier to pass on or gift early.
Business & Agricultural Asset Restructuring
The £1m cap on BPR/APR is a major blow to family firms and farms.
- Solution (Fragmentation): If a business is owned by one spouse, transfer shares to the other spouse to utilize both £1m allowances (total £2m tax-free coverage).
- Solution (Life Insurance): For business value exceeding £2m (per couple), the excess will be taxed at ~20%. A Whole-of-Life insurance policy written in trust can provide the liquidity to pay this tax without breaking up the business.
Normal Expenditure Out of Income
The Budget did not touch this valuable exemption.
- Solution: You can gift unlimited amounts tax-free immediately if the gifts are regular, come from surplus income (not capital), and do not impact your standard of living. Document this meticulously using form IHT403 to ensure executors can claim it.
Wills and Trusts
- Solution: As the article suggests, ensure wills are written as Tenants in Common. This prevents the first spouse’s share of a property from automatically passing to the survivor (which would just swell the survivor’s estate). instead, it can be passed into a trust or to children to utilize the first spouse’s allowances.
And Finally…
The Budget 2025 was less draconian on gifting than feared but harsh on asset holders (business owners and pension savers). The window of opportunity mentioned in the article remains open for lifetime gifting, but the door is closing on tax-free business succession and pension inheritance. Immediate action to utilize the 7-year rule and restructure business ownership is essential.
